Opting to pay in rupees in light of US sanctions, New Delhi approves agreement worth $1.5 billion that will be used to increase Tehran’s investment in India

Indian Prime Minister Narendra Modi, right, and Iranian President Hassan Rouhani, left, wave after a ceremonial reception at the Indian presidential palace, in New Delhi, India, February 17, 2018. (AP Photo/Manish Swarup)

India has reportedly handed Iran a tax break worth hundreds of millions of dollars, effectively green-lighting a crude oil import deal that had thus far been hindered by sweeping US sanctions.

India, one of among eight countries exempted from those sanctions for six months, has moved to pay for the oil in its currency, rupee, since the main banking channels dealing with global currencies are blocked by Washington’s measures.

The $1.5 billion crude oil deal was signed on November 2 between India’s finance ministry and the National Iranian Oil Company (NIOC), Reuters reported Monday, citing a government order.

Such a payment to a foreign company operating in India would have normally been subject to a tax of 42.5 percent, or $637.5 million — a deal-breaker for the Iranians — according to the report.

The exemption from that tax was signed by the Indian finance ministry on Friday and is backdated to November 5, the report said.

The payment to NIOC will be in rupees — a currency that can’t be freely traded internationally — and will be used by Tehran to pay for imports from India, invest in Indian businesses and pay expenses of Iranian missions and students in India.

An Iranian military speedboat patrols the waters as a tanker prepares to dock at the oil facility in the Khark Island, Iran, March 12, 2017. (Atta Kenare/AFP)

“In the previous round of sanctions Iran was allowed to use funds for imports from India but this time we have expanded the scope for use of funds to benefit both nations,” an unnamed Indian government official was quoted by Reuters as saying.

In November, US President Donald Trump’s administration reinstated all of Washington’s sanctions on Iran that had been lifted under the 2015 nuclear deal.

The sanctions were the second batch that the Trump administration has reimposed on the Islamic Republic since it withdrew from the nuclear agreement last year.

The rollback ended US participation in the Obama-era accord, which now hangs in the balance as Iran no longer enjoys the billions of dollars in sanctions relief it was granted under the deal in exchange for curbs on its nuclear program.

Iran is already in the grip of an economic crisis. Its rial currency has plummeted and oil exports have steeply fallen, though India and China have continued to purchase it. Most Europeans, as well as Japan and South Korea, have stopped.

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